What is UKOG worth part 2 - UKOG Detailed revenue analysis for Horse Hill September 26 2019

ukog logo

The UKOG planning application for Horse Hill included the following:

The development period being sought is for 25 years and the development is divided into five phases briefly summarised as:

 Phase 1 – involves well site modifications and new construction works;

 Phase 2 – to be split into 4 activities which includes the mobilisation and demobilisation of equipment to facilitate initial workover operations for HH-1/1z and HH-2 wells, the mobilisation and demobilisation of the drilling rig and drilling of 4 new hydrocarbon wells (HH-3 to HH-60 and 1 water reinjection well;

 Phase 3 – involves 4 stages comprising; installation of production equipment, production of oil, maintenance workovers and sidetrack drilling;

 Phase 4 – comprises the plugging, abandonment and decommissioning of the wells; and

 Phase 5 – is for the final phase which involves restoration and aftercare of the site.

The applicant (UKOG/Alba) proposes the maximum HGV movements to the site per day across all five phases will be no more than 32 movements (16 HGV arrivals and 16 HGV departuresout). The applicant anticipates it is during the early production stage of Phase 3 that will generate the envisaged peak of 32 HGV daily movements and will last approximately 4 months. The potential traffic according to the phase of the development is set out below.

So during phase 3 drilling, 4 months of 32 tankers a day (3500 barrels of oil), 24 months of 24 tanker a day (2640 bopd), 48 months at 16 tankers a day (1760 bopd), 60 months at 8 tankers a day (880 bopd), 104 months at 4 tankers a day (440 bopd)

Peak flow of 3500 bopd maybe only for 4 months, but lets face it even in 2039, Horsehill will be churning out 440 bopd, or around $15,000 a day, 86% net to UKOG. The swampies keep talking about 32 tankers, only lasting 4 months, but the subsequent 6 years,((24*2640)+(48*1760))/72 = 2,053 bopd, which isn’t bad at all. At $39 barrel next after costs and 86% net to UKOG that equates to $69,000 a day, (£55,000). £24.7 million a year net to UKOG after costs!

Net Present Value based on planning projections of BOPD (tankers)

An NPV 10 of revenue £156 million, shows that the current market cap of £70 million hugely undervalues the Horse Hill asset and hence UKOG (no Dunsfold, Isle of Wight etc).

Key assumptions behind NPV calculation

  • 10 percent discount rate

  • Horse Hill production : 2020 1750 bopd (reduced to allow drilling of additional wells to target kimmeridge and portland reservoirs in full, 2000 BOPD in first half 2020, 3500 in Q3/Q4 2020), 2021-2022 2640 bopd (12 tankers a day - 12 in and 12 out), 2023-2028 8 tankers a day (8 in and 8 out), 2027+ 4 tankers (4 in and 4 out)

  • Brent crude average price $60

  • Lift costs $18 a barrel a, marketing and transport to Fawley refinery $2 a barrel

  • HH owned 86% by UKOG in 2021 and 100% in 2022

  • 1GBP = $1.25

Shareprophets article extract (for education purposes only) Expose: UK Oil & Gas - What's the latest on the "Gatwick Gusher"? What is it actually worth? (June 26th 2019) Peter Brailey

Brailey says in his article (extract only)

Shareprophets article extract June 26th 2019

Observations on Shareprophets article

  1. A new CPR is being prepared for the Horse Hill development following the Extended Well Test. The CPR done in 2018 is largely irrelevant as the kimmeridge and portland zones have now been fully assessed over many weeks.

  2. The horizontal wells 1000m in length are expected to produce 1000 bopd, not 780-1080 (source UKOG)

  3. Rates of decline and water injection need overly pessimistic

  4. 2C recoverable of 2 million is out of date.

  5. NPV10 projection at $40 a barrel netback giving £22 million seems widely pessimistic. I would love to see the spreadsheet behind these assumptions. Contrarian NPV of £156 million backed up by solid assumptions which anyone can challenge and relate to data in the recent SCC planning doc and also UKOG sources

  6. Planning consent at Horsehill has been achieved 6 weeks for 25 years